Rachel Reeves’ stealth tax raid to slap extra £7,000 on high earners
Rachel Reeves would force Britain’s high earners to face a mounting tax burden if she opts to extend the freeze on income tax thresholds in the autumn Budget.
The Chancellor would slap an extra £7,000 in income tax on Brits earning over £100,000 if the freeze is maintained, analysis from wealth manager Rathbones reveals.
An extension would drag 1.4m people into the highest rate bracket, which captures those earning over £125,140 a year.
Reeves is poised to hike taxes by as much as £50bn in the autumn in a bid to restore her £9.9bn in fiscal headroom.
This has spiked fears she will turn to frozen income tax thresholds – often dubbed fiscal drag – which are due to expire in 2028.
The freeze combined with rising inflation and wages would mark a financial headache for taxpayers across the country.
For those earning £80,000 the additional tax burden would be £5,635 and for £50,000 it would be £4,632.
Ade Babatunde, senior financial planning director at Rathbones, said: “With the Chancellor searching for ways to plug the nation’s financial black hole, the freeze on income tax thresholds could be dragged out further.
“It’s taxation by stealth: the rates stay the same, but a bigger slice of your pay disappears into the taxman’s coffers.”
Income tax receipts jump
The tax speculation comes after a series of Labour U-turns and a £190bn splurge at the Spending Review helped crush the Chancellor’s wafer-thin fiscal headroom. Reeves’ £9.9bn was the third-smallest on record of any Chancellor since 2010.
Reeves’ own “iron clad” fiscal rules dictate day-to-day spending must be funded by tax receipts.
City analysts have predicted tax rises could be anywhere between £10bn, a figure cited by banking juggernaut JP Morgan, and £50bn – a gloomy speculation from the National Institute of Economic and Social Research.
July’s income tax receipts came in at £4.5bn after a rise in self-assessed payers.
Sarah Coles, head of personal finance at Hargreaves Lansdown said: “We saw the usual self-assessment bump in July, as people who work for themselves and meet the criteria make their payments on account.”
But Coles added the higher tax take cannot be written off as a “one-off” with the self-assessment tax taking up 21 per cent from last year.
“Early estimates suggest we might pay an estimated £89.2 billion more in tax on our earnings in the current tax year. This is due in large part to the frozen tax thresholds,” she added.
“Speculation about possible income tax changes in the autumn Budget hasn’t been widespread, but we can’t rule out the risk that the freeze in tax thresholds could be extended and drag even more people into expensive tax bills.”